Bad Internet in the Big City

New York was supposed to be a model for big-city high-speed internet. Here’s how it became a cautionary tale for uneven connectivity.
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For the past six months, life has been miserable for my dry cleaner.

A small business in Greenwich Village, Jerri's ("Cleaning the Village Since 1964!") has relied on Verizon’s DSL internet access for years. DSL is our era's version of dialup. It's excruciatingly low-capacity: Dialup works by dividing frequencies over a copper phone line, making it slow to transmit information. Because of problems with the wiring running to the building, Jerri’s internet access has been sporadic—often making it impossible to access customer accounts.

New York was supposed to be a model for how the modern city could launch high-speed internet for its residents. When the Bloomberg mayoral administration re-signed an agreement with Verizon in 2008, it required that the company wire all residential buildings with its fiber service, FiOS. The agreement was heralded by the press as a way of triggering competition— the presence of Verizon’s fiber product would end the local monopoly of Time Warner Cable, now Spectrum, which provides internet access over a different, lower-capacity wire called hybrid fiber-coaxial. Cable internet access dominates most cities, but it often loses market share to more reasonably priced fiber offerings.

The city believed that the new agreement would bring great changes: Every residence could choose between fiber and cable. Verizon, for its part, promised it would finish the job by the end of 2014, and said the presence of its fiber network would cut prices, “promote innovation, and improve the quality of service provided to the people of the City.” That hasn’t happened.

Even in the capital of American commerce, competitive options frequently aren't available. Jerri’s is just a single business, but its struggles show the dreadful state of high speed internet access in New York City. The trouble is that New York’s government holds legal power over residential cable television service, not business service. And the agreement left plenty of loopholes for Verizon. At the beginning of last year, Verizon said that FiOS was "available" to "nearly seven million homes and businesses in greater New York City." But Verizon can pick and choose which businesses are eligible for FiOS, which means that mom and pop outfits, like Jerri’s, can get left out.

It's impossible to say how common this problem is across the city; Verizon makes nothing public. A 2015 city audit showed that at least a quarter of the city's residential blocks had no FiOS service. About a third of Bronx residents and more than 60 percent of New Yorkers without a high school education don't have a wire at home.  According to the city, one in five New Yorkers doesn't have internet access at home, and the figure rises to one in three for people living under the poverty line. Spectrum's services may be "available" to all of those residences, but the prices charged for this utility service are effectively unaffordable to many New Yorkers.

Now the City of New York has sued Verizon over the company's failure to wire all of the city's residential buildings with FiOS.  Verizon claims that the franchise agreement simply requires it to bring fiber to an intersection near a particular address, rather than to a midpoint on the block where that address is found. The company points to building owners as major obstacles—claiming that the city has failed to help it get its services into buildings.

But New York City's connectivity woes hold a lesson for other municipalities: Cities need to build or oversee their own "dark" (passive) fiber networks to ensure that everyone gets world class, inexpensive data access. (New York City  has asked for good ideas aimed at improving universal high speed internet access, and this should be one of those being considered.) Where cities control the blank street grid of fiber reaching every building, they can force competition, low prices, and sterling customer service into the marketplace. Otherwise, your businesses, as well as your residents, will be gasping for air.

New York City could be in a very different position today if those Bloomberg officials had called for a city-overseen fiber network. The creation of a neutral, unlit "last mile" network that reaches every building in the city, like a street grid, would have allowed the city to ensure fiber access to everyone. It could have been a money-making enterprise: The city might have leased access to that network to a host of competing retail providers, as San Francisco is considering. That would have spurred competition and lower prices for all of the nearly one million businesses in New York City, not just the one-off shiny Silicon Alley virtual reality incubators on which Verizon's press releases are currently focused. Every business needs the opportunities made possible by great, symmetric, inexpensive internet access.

When cities don't exercise control or oversight over basic infrastructure like roads, bridges, electricity, or, now, fiber access, they can get stuck with whatever services the private market decides to provide. That has grave consequences. It makes little sense for multiple companies to incur the high upfront costs of installing wires to particular addresses, so markets will inevitably be divided between local monopolies. And companies will pick the most lucrative areas to serve and will leave out poorer households or smaller businesses. Cities end up with high-priced, noncompetitive services that are great for the companies selling them, but not great for public values and overall economic growth.

It’s not that Verizon isn’t capable of building such a grid. Times are good for the telecom giant. The Trump administration's tax cuts have lowered its tax rate from 35 percent to 21 percent, which will increase the company's free cash flow for 2018 by $3.5 billion—to $4 billion. That's a stupendous amount of money. Verizon has magnanimously announced it will hand 50 shares of its stock (total value as of February 1: about $2,700) to each of its full-time employees, a gesture similar to John D. Rockefeller's tradition of tossing dimes over the side of his touring car to waiting crowds.

Verizon is free, of course, to use its tax windfall however it chooses; the company is likely to pay down debt, buy back its shares to increase their value, and shore up its dividends. Or maybe buy some other company. But the company is under no obligation to use its riches to improve its service—and that’s a problem.

The better way forward, by far, is for cities to incur the upfront burden of building infrastructure that allows wholesale fiber reaches every address, and then leasing that access to a host of competitors. Result: inexpensive, world-class data services for everyone. In the end, Jerri's story shows that dense city blocks face the same challenges as rural areas: Under Verizon’s care, we are all being taken to the cleaners.


Digital Cities

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